I’ve heard variations on this phrase hundreds of times, and I’ve long disagreed. But this time the phrase was coming from the keyboard of colleague whose intelligence I greatly respect, so it got me thinking.

I questioned my previous stance… is shorting immoral because you are profiting from the misery of the long investors? But I had to conclude that there are many instances when shorting is essentially moral.

Consider, a company whose business is profiting from the misery of others. For instance, a tobacco company, such as Phillip Morris (MO), to take a fairly un-controversial example. Aren’t the investors who own MO stock profiting from the misery of others? Wouldn’t the most moral course be to short MO, rather than going long?

There is a current of belief on Wall Street that, in the immortal words of Gordon Gekko, “Greed is Good” and the pursuit of maximum gain brings benefits to society. If you subscribe to this beleif, then of course there is nothing wrong with shorting, so long as you make money.

Yet if you reject the “Greed is Good” premise, and feel that there should be some moral dimension to our investment choices, you cannot also reject shorting out of hand. To do so would be to assume that all public companies are working for society’s best interests, something I find more than a little hard to swallow.

I have to conclude that shorting in and of itself is neither good nor bad… just as buying stocks is neither good nor bad. To decide if shorting a stock is good or bad, you first have to decide on your opinion about the morality of the company you are shorting or investing in. Your stock purchases are only as good as the companies you are buying, and your stock shorts are only as bad as the companies you buy are good.